Here are some trade themes where we see value, as of July 16, 2017 (with a 1+ week delay):

Value on the Curve: (active CA trades):

  1. *** Buy cheap crisis protection. A combination of N Korea tensions, increased Trump headline risk, and general headline risk could cause a large rally.
  2. *** Look to buy cheap flies in the valley of the fly curve. Favorable roll, discounted stimulus prospects and the Fed stopping balance sheet reinvestments should keep these supported.
  3. ** EURIBOR: The reflation trade looks cheap there. Europe is gaining some momentum and a positive-roll look at reflation seems attractive.
  4. ** Look at calendar spread structures in the purples for roll. This is also great insurance against the 30 years from leading the puking, and walls aren’t cheap.
  5. ** The term structure of ED-FF looks too steep in front of EDH8 and too flat behind EDH8. Playing for reflation in the ED-FF spread curve behind EDH8 seems attractive.
  6. * Look for opportunities on the 6mo fly curve. Some structures should move on a further rally but move less on a selloff.
  7. * Look to establish long double fly positions at the back of the curve. This is less attractive with the longer end reflating.
  8. ▼ * Buy ED 2018 meetings (relatively). I’m slightly concerned about the weak inflation and consumer data.

Value on the Horizon: (“C” trades):

  • * Look at cheap bearish tail trades. The curve is flat and the long end could really sell off. If the Fed pauses to stop reinvestments, this could steepen the longer end of the curve.  There will be more Treasury issuance.
  • When could Kuroda say anything bearish? Surely he doesn’t intend to take the entire other side of the global bond selloff?
  • When does the Fed start going to a point target? This could occur before the end of 2018.
  • Look to sell some EU flies closer to 0. After tapering could come hikes from negative rates.
  • Look for cheap ways to fade a 2017 Fed hike. The data is weak and the Fed wants to taper first.

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